Luxury Insights

A look at the market (September 2008)

There's a tiny ray of sunshine peaking though the storm clouds.

If we look at NAR's report of the actual number of closed residential transactions (single family, condo and co-op) in the U.S. in September (as opposed to the seasonally adjusted numbers), there is a bit of good news. There were 7.8% more real buyers (closed transactions) in September of this year than last.

If your immediate reaction is, "Not in my market!" that may be because the part of the country you are in and the market segment that you target make a difference.

The geographic breakdown looks like this for September 2008:

While the increase in sales is good news, don't get too excited. The primary driver of the uptick is the 42.9% increase in sales in the West, primarily California. Here are some other facts to consider: It is estimated that 35% to 40% of the nation's September sales were distress sales, either short sales or foreclosure sales. This is reflected in the decline in median home prices across all geographic areas. The two regions with positive sales growth show the largest price declines. Factor in a current resale inventory of 4,266,000 homes and you can see that we are not out of the woods yet.

What does this mean to your real estate practice?

If you aren't targeting distressed sellers, short sales and foreclosures (yes, they exist in the luxury segment), you are missing an active market niche. If this niche is not your cup of tea, there are still non-distress deals being done in the upper-tier (just fewer of them than previously!). This mean you must work harder and smarter to capture the business. What follows are a few reminders to help you define your on-going strategy.

The wealthy are shopping Online

Upper-tier buyers are avid users of the Internet. In fact, as income goes up, so do the number of hours spent Online. The affluent are researching homes and agents Online. You must be sure your Web presence is strong and effective and that you are maximizing the value of the Web with your property promotion.

They want to work with The Expert

An equally important strategy is to position or brand yourself as the expert in the upper tier. As I describe it in training, you must position yourself in the minds of the affluent as unique and better able to meet their needs. This means you must be truly knowledgeable.  Remember that the affluent are predominately business owners, self employed professionals and high level corproate executives. They are bottom- line oriented and want to know the specific market statistics. They understand that market averages across all price ranges aren't relevant , except to identify general trends. They expect you to know what's happening within price narrow bands within the luxury market. Make sure you do. This will immediately differentiate you from the competition.

Your listings must rank at the top of the list

In a strong market, most everything sells. In a slow market, only the very best properties -- based on price, condition, and staging -- will sell in a reasonable time and for a good price. This means you must work to be sure you have one of the top one or two homes in your price point. Work with your sellers to move your listings to the top of the value list. Yes, I know this is a challenge, but it is key to success.

Your marketing skills must be top notch

Have you analyzed what is unique about your listing? What are the key selling appeals for your listing? Do you understand the concept that every home has its own story and that it is your job to tell it in a compelling way? Are you using the positive power of a great headline (or defaulting to the property address)? Are you writing good long copy or taking the lazy way out with bullet points?  Do your property photographs measure up? Are you targeting your marketing to the most likely buyer category for your listing? The list could go on, but you get the idea. Now's the time to focus on honing your marketing skills and implementing a sophisticated marketing plan. If your copy and your plan are generic and can shift from property to propery "as is," you're on the wrong track.

A slow market represents an opportunity

Business overall is down, but if you focus on branding yourself as a luxury expert, truly become an expert, build a strong Web presence for yourself and your property listings, and understand how to merchandise and market your properties effectively, you can grow your market share. With a bigger market share, you are positioned to vastly expand your business when the market turns up again.

Note:   The Institute is working to help our members cash in on this opportunity with advanced training and networking opportunities like our annual Leaders in Luxury event and with added value marketing, including FREE Online property listings on The Wall Street Journal's website.  See the membership section at www.LuxuryHomeMarketing.com, call or email us for details.  

 

Finding opportunities to connect

As I sat in the wrap-up session last Friday at our Leaders in Luxury meeting and listened to people talk about what they found to be the “big ideas” and valuable takeaways, it struck me that although they came at it from very different directions, a number of our speakers had essentially the same formula for success:

• Identify and take advantage of marketing opportunities that others overlook
• Engage the senses to connect emotionally and meaningfully with your prospects
• Make it easier for prospects to visualize what their lives might be like as owners of the home

Take Frank McKinney for example.  When it comes to presenting the home, Frank has an intimate and sophisticated understanding of the psychology of the “showing.”  He has developed a whole set of tactics to help ensure that as the experience of seeing the home unfolds he is able to identify and exploit key opportunities to engage the senses and influence the perceptions of potential buyers. 

Frank even talked about blocking the driveway so that rather than driving, the potential buyer must walk up to the home, feeling the smooth marble of the driveway or the soft grass underfoot, hearing the birds chirping and the wind weaving through the trees…smelling the freshly mowed lawn and catching glimpses of the guest house, which seen through the trees, looks as if it is floating on a lagoon…  Engaged by the moment and the five senses, the buyer is at the same time relaxed and in a heightened state of awareness—the perfect preparation for the key moment that is about to come—the front door experience. 

There is a heightened sense of anticipation that comes with that first opening of the front door.  It is a key moment in the experience of a home, and Frank understands that this is an opportunity to embrace.  From setting the stage with the approach, to what lies behind the door in terms of sights, sounds, smells, and tastes, Frank is an expert at magnifying this natural feeling and crafting an experience that engages the senses, envelopes the person in the moment, and helps them to connect with the home emotionally. 

He is careful too, to create experiences that make it easy for prospects to see what their lives might be like as homeowners.  From the detailed merchandising and staging of the homes to actually giving them gate codes and keys so that they can “come home” for an evening of relaxation, Frank helps them to experience the home as if it is already theirs.  Achieving this mental “buy-in” is powerful.  After all, it means that in order for a prospect to walk away, they not only have to pass on the opportunity in the abstract, but they have to be willing to give up something which they have already experienced as their own. 

Likewise with master ad man and copywriter Stan Barron.  Stan sees in the headline of an ad what Frank sees in the front door experience—a potentially make or break opportunity that most agents simply ignore. 

While most folks simply plunk down the property address as the headline, Stan knows that a headline is often your best chance to get the attention of your target audience and effectively position the property.  As Stan notes, a good headline is not a “safe” one, but rather a decisive one that will catch the attention of prospects (and chase away non-prospects). 

“Tired of seeing big homes on tiny lots?” 

“The right price—and location—for a new townhome if you can accept some road noise”

“Ultimate weekend house on Lake Travis.  Priced high enough to ensure satisfaction”

Using his methods, you can take what most would consider to be a home’s shortcomings and neutralize them or even turn them into benefits.  As Stan puts it, “Ads that admit fault are disarming, and it adds credibility to everything else you say…and ALL homes have some drawbacks.”

Beyond recognizing and taking advantage of the opportunity that headlines offer, Stan also emphasized the importance of using lots of casual, descriptive language to engage the senses and connect emotionally with prospects. 

Again as he put it, “Don’t just say your listing has a covered porch…ask the reader to imagine starting weekend mornings there with fresh coffee and the newspaper…or suggest it as an inviting spot to write a letter to a friend or curl up with a good book.”  Not only are these scenes evocative of the senses and emotions, but they help the prospect to take mental and emotional “ownership” of the property with warm and inviting experiences.  Even if imagined, they are powerful.

Good Grief! What's happening to the luxury market?

The luxury market in 2009 will be very different than in 2008

For most of 2008, the luxury market has been bi-modal. The  bottom half of the of the upper tier has been slower than one would normally expect during a market slow down, because many entry-level luxury buyers have stretched to buy as much house as possible, often using loans which proved to be inappropriate for their situations. This resulted in inventory increases and declining values.

On the other end of the spectrum, the top of the luxury market has been strong for the first three quarters of 2008.  National and world records were set for most expensive residential sales and the very top of the market in most metro areas remained active, while properties at other price points languished.   Helping to drive this top of the market activity -- the number of wealthy in the world has increased and the wealth they control has grown. 

As the last quarter of 2008 begins, the global financial market meltdown has created a wait and watch mentality across price ranges.   Buyers at the very top are citizens of the world and their luxury home purchases are often portfolio plays as well as lifestyle purchases.  Leading up to 2008, many very successful individuals had not only moved more of their assets into direct and indirect real estate investments, they had shifted more of these dollars into ownership of multiple residences.  In 2008, asset allocation has shifted again – cash, precious metals and treasuries are king – but residential real estate is still an important part of wealthy individuals’ portfolios. 

This year has been a reminder that real estate is a local business.  Metro areas which have enjoyed strong job and population growth, yet not seen a big run up in real estate prices, are outperforming the market in general.  Dallas is a good example of this.  By contrast, NYC which prospered during Wall Street’s derivative excesses, may face a more sobering marketplace during the last quarter of the year. 

The international buyer has been an important market segment this year.  This niche will still be significant in 2009, but wealthy international buyers will most likely be more cautious purchasers.  Even the big-spending Russian Billionaires must be feeling the result of oil price declines, the drop in the Russian stock market, and the credit crunch of recent weeks. However,targeting the very wealthy is still smart strategy.

Although it’s difficult to predict, at this point, how 2009 might play out, the key factor will be how quickly a US and global financial recovery occurs.  If governmental actions across the world stabilize the financial markets and consumer confidence returns, activity in the top half of the luxury market should be strong again.  In the bottom half of the luxury market, inventories will remain high in early 2009, creating a buyers’ market. 

Financial market health, Interest rates, credit availability, relative currency values, stock market conditions, attractiveness of alternative investments, and political conditions are all wild card factors that will impact the luxury residential market in 2009.

The good news is that the luxury home market is the last segment to slow and the first to bounce back! 

"The impact of the bailout" - Past Chief NAR Economist Speaks Up Live

As many of you know, Justin Zimmerman of GoodMorningRealEstate is putting together the first "webinar" online conference for Realtors. 

He has pulled together more than two dozen of the industry'€™s top speakers, trainers and luminaries for an international web event, delivered live by phone and internet over six weeks.  There will be "Mastermind Sessions," on-demand videos, and all sorts of good stuff.  Laurie will be participating, with a segment on finding success in the luxury market.

In the lead-up to the main event there are some FREE weekly events and promotions worth checking out. This week, it is a call with former Chief Economist for NAR, John Tuccillo.

The call is this Thursday, October 9th at 8 p.m. (EST).

Current Questions on the block:

• How did we get here?
• When are we getting out?
• Where will the $700B go?
• How will this impact foreclosures?
• Is the bailout good for REALOTRS?
• How does the credit ecosystem work?
• Are all banks bad? Whose our Allies/Enemies?
• How foreign buyers affected by oil/US dollar?
• Is there a way I can 'recession-proof' my business?

Add your questions now

To help mold the call, John and Justin have agreed to accept questions before hand and invite you to submit them on the registration page.

Justin recommends you dial-in on Thursday a few minutes early, as there are only 243 lines, and it's on a first-come-first-serve basis. If you are interested but can't make the call, register anyway--Justin will be sending a recording of the call to everyone who registers. 

Here's the link to the REGISTRATION PAGE where you can sign-up for the call, and enter a question you'd like answered on the call. 

Once you register, Justin at GoodMorningRealEstate will send you an email with the dial-in information for the call.

It's free, and it's certainly worth checking out!